FERA and the False Claims Act, Part I: No Direct Presentment Required

By Jonathan DeSantis

In May 2009, Congress passed the Fraud Enforcement and Recovery Act of 2009 (“FERA”), which implemented substantial changes to the False Claims Act (“FCA”) for the first time in two decades.[1]  This three-part series of blog articles will discusses three of the most important changes, including (1) a clarification that the FCA applies to false claims made to third-parties when government funds are involved, (2) an enhancement of retaliation protections for whistleblowers, and (3) an expansion of “reverse” FCA liability.

Direct Presentment Prior to FERA

Prior to FERA, the FCA imposed liability for any person who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . .  a false or fraudulent claim for payment or approval.”[2]  In light of the “to an officer or employee of the United States Government” language, courts interpreted the FCA as only creating liability where a claim was presented to the Government, i.e. that liability did not exist in situations where false claims were presented to recipients of government funds, even where government funds were used to pay the false claims.

For example, in the seminal pre-FERA case on this issue, Amtrak received federal grant money to purchase new railcars for Amtrak trains, and Amtrak contracted with companies to supply the railcars.[3] The companies submitted payment invoices to Amtrak for railcars that did not satisfy contractual specifications, and Amtrak paid the invoices using federal grant money.  A relator asserted FCA claims against the companies based on this conduct, but the court found that the FCA only imposes liability when false claims are submitted directly to the federal government.  The court concluded that the “claims were presented only to Amtrak for payment or approval, and Amtrak is not the Government.”[4]  This became known as the “presentment” requirement and led courts to conclude that false claims presented to recipients of federal funds (like Amtrak) were not within the scope of the FCA.[5]

The Presentment Requirement Drastically Limited FCA Liability

This limitation was extremely problematic given that the federal government often supports initiatives through appropriating funds to third-parties, who in turn use the federal funds to operate a variety of important programs.  Given that the purpose of the FCA is to punish those who attempt to wrongly obtain federal funds,[6] the “presentment” requirement served to both substantially limit the breadth of the FCA and undercut its purpose.

For example, under the traditional Medicare program, the Government directly provides healthcare coverage to seniors and disabled individuals. In 2003, Congress created an alternative to traditional Medicare known as Medicare Advantage. Unlike traditional Medicare, Medicare Advantage plans are offered by private non-governmental entities.  Medicare Advantage beneficiaries receive insurance coverage directly through these entities, and the entities are responsible for processing and reimbursing claims from healthcare providers.   If a “presentment” requirement exists, then false claims made to the Government under traditional Medicare would be within the scope of the FCA, but false claims made to the private entities that provide Medicare Advantage plans would not despite the fact that they use federal funds to implement a federal program.

FERA Removes All Doubt: There is No Presentment Requirement

In FERA, Congress expressly rejected the “presentment” requirement and in fact clarified that there never had been such a requirement.  FERA eliminated the language “to an officer or employee of the United States” from the FCA, such that the FCA now imposes liability for anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”[7]

In enacting FERA, Congress explained that it was “amend[ing] the FCA to clarify and correct erroneous interpretations of the law” and that the presentment” requirement “runs contrary to the clear language and congressional intent of the FCA by exempting subcontractors who knowingly submit false claims to general contractors and are paid with Government funds.”[8] Congress specified that liability under the FCA “attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the Federal Government.”[9]  Put differently, Congress said that the courts had gotten it wrong, but that it amended the FCA to specifically clarify this issue.

Post-FERA: No Direct Presentment Requirement

Courts have faithfully adhered to FERA’s clarification that the FCA does not contain a “presentment” requirement.  For example, the Supreme Court recently observed that “[a] ‘claim’ now includes direct requests to the Government for payment as well as reimbursement requests made to the recipients of federal funds under federal benefits programs.”[10] Another court  similarly explained that “[t]he new language underscored Congress’s intent that FCA liability attach to any false claim made to an entity implementing a program with government funds, regardless of whether that entity was public or private.”[11]

Conclusion

Following FERA, the FCA now clearly applies to false claims presented to third-parties when federal funds are involved.

[1] FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009 (FERA), PL 111-21, May 20, 2009, 123 Stat 1617 (May 20, 2009).

[2] 31 U.S.C. 3729(a)(1) (1994) (emphasis added).

[3] U.S. ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004).

[4] Id. at 502.

[5] See e.g. U.S. ex rel. Atkins v. McInteer, 345 F. Supp. 2d 1302 (N.D. Ala. 2004) (“[A] false claim, if presented to an entity that, in turn, has received or subsequently receives money from the United States with which to pay the claim, is not actionable, despite the fact that the money, in whole or in part, comes from the United States.”); U.S. ex rel. Rafizadeh v. Cont’l Common, Inc., 2006 WL 980676, at *2 (E.D. La. Apr. 11, 2006).

[6] U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 304 (3d Cir. 2011) (“The primary purpose of the FCA is to indemnify the government-through its restitutionary penalty provisions-against losses caused by a defendant’s fraud.”) (internal quotation marks omitted).

[7] 31 U.S.C. § 3729(a)(1)(A).

[8] S. REP. 111-10, 10, 2009 U.S.C.C.A.N. 430, 438, 2009 WL 787872 (Mar. 23, 2009).

[9] Id.

[10] Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 1996 (2016) (emphasis added).

[11] United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632, 638 (7th Cir. 2016).

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By | 2018-03-27T01:47:35+00:00 September 12th, 2017|False Claims Act Information|